I lived and worked in Shanghai and Hong Kong for almost two decades and now write primarily on China, Asia, and nuclear proliferation. I am the author of two Random House books, The Coming Collapse of China and Nuclear Showdown: North Korea Takes On the World. My writings have appeared in The New York Times, The Wall Street Journal, Barron’s, Commentary, and The Weekly Standard, among other publications. I blog at World Affairs Journal. I have given briefings in Washington and other capitals and have appeared on CNN, Fox News, MSNBC, Fox Business, Bloomberg, CNBC, and PBS. I served two terms as a trustee of Cornell University.

Chinese Companies To Nasdaq: Sayonara, Zai Jian, Bye Bye

Carol Yu, co-president and chief financial officer of Sohu.com, last week denied newspaper reports that the giant Chinese internet portal was in talks to go private. “No such discussions are in progress or currently contemplated,” she said in a statement Wednesday.

Hours before, Hong Kong’s South China Morning Post, citing four “financial industry sources,” reported that the Beijing-based company had talked to Credit Suisse and others about its plans to delist from Nasdaq, where it debuted in July 2000. “Both Charles and his bankers believe Sohu is significantly undervalued at present in terms of share price performance,” said a source to the paper, referring to Sohu founder and Chairman Charles Zhang.

There’s no doubt that Sohu has been underperforming the market. In the past 12 months, the stock has fallen more than 9% while the S&P 500 jumped more than 12%. Zhang may blame America, but the decline is attributable to investor skepticism about his company’s profitability in the long run, despite a good fourth quarter when it outperformed expectations.

Sohu does not match up well against its host of competitors, especially its two main portal rivals, Sina.com and NetEase. Moreover, Sohu is also outgunned by companies that provide specific services, most notably Chinese search leader Baidu. All three of these Sohu competitors are Nasdaq-listed.

Sohu is not the only laggard trading in the U.S. As a result of low stock prices, Chinese companies are leaving American exchanges. Barron’sreports that last year 25 U.S.-listed China businesses announced they would delist. In 2011, 16 of them revealed delisting plans. In 2010, the number was six. Besides Sohu, two other major Chinese companies have “sought advice” on fleeing U.S. exchanges, the South China Morning Post reports.

Charles Zhang, according to the Hong Kong paper, has been inspired by the privatization plan of Focus Media, a Nasdaq-listed firm. If the Shanghai-based advertiser actually goes private, it will be the largest Chinese company to delist from a U.S. exchange.

Analysts think Focus Media will relist in Hong Kong once it bulks up its revenues and strengthens its balance sheet. That appears to be Charles Zhang’s plan for Sohu as well. Even though Sohu issued denials—one of them in an 8K filed with the Securities and Exchange Commission—the reporting of the South China Morning Post nonetheless feels accurate, especially given the delisting trend among Chinese companies.

Why are China’s companies hopping to exchanges closer to home? For one thing, compliance burdens are generally lighter outside the U.S. Yet that has always been the case.

Now, however, China’s U.S.-listed companies have been tarred by the bad publicity generated by dodgy China-based businesses that have sold shares in the U.S. and elsewhere, most notably Toronto. American sentiment about China is changing, and Chinese firms have sensed the new mood. Even market darling Baidu has been hit hard, suffering a 16.2% drop in its stock price last month.

But Chinese internet mogul Jack Ma, in one instant, could reverse trends. He just engineered the delisting from the Hong Kong exchange of Alibaba.com, one of the units of his Alibaba Group, China’s second-largest internet company as measured by revenue. The move is thought to be in preparation for its listing.

Chinese internet firms have often chosen Nasdaq because they could not meet the Hong Kong Stock Exchange’s three-year profitability requirement. Profitable Alibaba Group, however, does not have to go to the U.S. to sell shares. Ma is exploring a Hong Kong listing, but his main focus appears to be going public on Nasdaq.

The significance of his plans? Wherever Ma decides to list, Alibaba Group could end up as history’s largest tech initial public offering.

A Nasdaq listing for Alibaba would be a blow to Hong Kong, reports Quartz.com’s Naomi Rovnick. The once-hot exchange there is in the middle of an IPO drought. Last year, the value of initial offerings in Hong Kong fell to a four-year low.

It’s not hard to see why. The Hong Kong market is overly dependent on a shaky China. This year, like last, Chinese sentiment is fragile with investors focusing on Beijing’s on-again-off-again efforts to stimulate growth. There is at least as much downside risk as there is upside in China’s markets at the moment. And investors there have noticed the resilience of American stocks, which now are on a four-day record-setting tear.

If Jack Ma carries through on his plans to list Alibaba Group on Nasdaq, Sohu’s Charles Zhang will probably change his mind and keep his listing in the U.S. If he were to continue trying to migrate to Hong Kong—as it appears he is now doing—he would be making the move at just the wrong time.

The Nasdaq-delisting trend for Chinese companies may look strong at the moment, but it has just about run its course.

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